What Covid has really done to your money

Women, renters and the squeezed middle were all harder hit by the virus – but it isn’t done with our finances yet

The UK has one of the highest Covid-19 death rates in the world (iStock/ The Independent)

For a while there, we were happy to believe the seemingly impossible.  

That somehow the cash injections and suspension of reality that was lockdown and the lack of expensive holidays and the logic-defying property market and a slow burn of unemployment would mean we might brush past the personal finance iceberg and sail on into the sunset with barely more than a tale to tell the grandkids.  

As lockdown 2 began, (or 3, depending how you’re counting – that second blip wasn’t quite as logistically severe when we could still fire the kids in through the school gates) we were still banging on about all those lucky people who had saved a bunch of cash.  

We remarked, with the careful nod to what we estimated was around half the population that was in trouble, on the people whose finances had, remarkably, never been in better shape, who had a new-found respect for financial security and responsibility. Whose pandemic experience might be the making of their money.

Astonishingly, the latest round of studies and research and surveys suggest that some of that really did come to pass. One seems to suggest that two-thirds of UK adults have been able to continue to save money even after people’s spending cutbacks softened and the spectre of redundancy started to stalk us in earnest.

But they also show this lockdown may be the worst one yet for our money, and that its legacy will be long.

We know we went into this period of isolation with a shakier jobs market.  

The ONS reported this week that redundancies hit a record rate in the three months to November. More than 14 people in every 1,000 were let go last autumn. The unemployment rate jumped 0.6 percentage points over the quarter to 5 per cent – that’s up 1.2 percentage points in the past 12 months.

Meanwhile, a fifth of UK adults have recently taken a salary cut or been furloughed, the latest Household Financial Confidence Tracker from comparethemarket.com has found.

More than half are eating into savings to cover everyday bills – the same proportion as is worried about running out of money completely. Almost one in 10 of us is now financially responsible for more people this time around, too.  

The current restrictions, which began on 6 January, officially expire on 31 March, though ministers have been quick to remind us they are under constant review. Frankly, few of us know if that’s good or bad any more.  

If lockdown restrictions carry on beyond April, nearly one in 10 families with children at home fears they will not be able to afford their rent or mortgage.

More than a quarter of families with children at home have already struggled to pay their bills in the past week.  

The hit we’re taking this time around means UK households believe it could take on average three years for their finances to recover to the levels of stability they “enjoyed” before the pandemic.

“Although the vaccine rollout is a much-needed light at the end of the tunnel, unfortunately for many families the financial impact of the coronavirus will be felt long after lockdown lifts,” says Ursula Gibbs, director at comparethemarket.com.

“Families with children at home are particularly affected and many are more concerned now about their ability to pay bills and make ends meet than at any other point in the past year.

“The fact that over a quarter of families with children at home feel there is less support available from banks – and nearly half say they are concerned about tightening eligibility criteria – shows just how important it is that financial providers continue to provide the support and understanding they have demonstrated so far throughout this very difficult time.”

But families aren’t the only ones struggling – not by a long shot.  

This week the Office for National Statistics released details of its own deep dive into our personal and financial wellbeing to 20 December.  

It confirmed that women, renters and, somewhat more unexpectedly, 30-59-year-olds, were hit especially hard. Its figures showed that if these groups were already in debt, they were more likely to take out further borrowing, that they would borrow more, that they were more likely to be struggling with their bills.  

“Women are more likely to live in the red than men, despite the fact that fewer of them were furloughed, fewer lost income and they had less trouble paying bills,” says Sarah Coles, personal finance analyst for Hargreaves Lansdown.

“This may indicate that women are more reliant on credit to deal with the ebbs and flows in their income and spending. They tend to have less reliable incomes, so may be more used to borrowing through the lean months. This may help them get by in more normal times, but it doesn’t work in a crisis like this.

“The squeezed middle, aged 30-59, face the biggest struggle to pay the bills, and many of them have been forced to borrow their way through the crisis. In mid-life we have so many more financial commitments, including mortgages, children and other borrowing.  

“There has been some flexibility on debt repayments, but we still need to keep everyone warm and fed, and pay bills on a family home. It makes it much harder to cut costs in tougher times, and the pandemic has hit hard.”

Meanwhile, the cash crisis among some renters reflects the fact that so many young people rent, and are more likely to have had their income affected by the crisis.  

“Renting has also given them less flexibility, because while those with mortgages have been able to take payment holidays of up to six months, those paying rent have been utterly reliant on the understanding of their landlord,” adds Coles.

Overall, UK household financial wellbeing declined faster at the end of last year than at any time during the five years before the Covid-19 pandemic, according to the Scottish Widows UK Household Finance Index (HFI) as earnings from employment continued to drop in the last quarter of 2020.  

The rate of decline has eased since Q3, but was still sharp and contrasted with rising incomes during the six years leading up to the pandemic. Similarly, households’ perceptions of their job security remained downbeat in Q4 as redundancies – we learned this week – hit record levels.

Households recorded the sharpest deterioration in their savings since the final quarter of 2013, largely reflecting a sustained squeeze on income from employment during the pandemic.  

“Household savings are being severely squeezed for those hardest hit by the pandemic, with around one in five households saying that lower workplace income had made their financial situation worse at the end of 2020,” warns Jackie Leiper, workplace savings director for Scottish Widows. 

“The continued pressure on families’ financial resilience and lack of protection leaves people in danger of saving less for the long term and more for emergencies due to uncertainty over the immediate future.

“Although finances are under strain, the latest fall was still much softer than in the three months to June, even in the face of stricter restrictions across the UK. 

“Households may see some light at the end of the tunnel as we move into 2021 with the development of successful vaccines, but with a national lockdown under way, we are likely to see measures that have a severe impact on finances in the coming months, as well as a delayed recovery in UK economic conditions.”